Taxes have changed; how will you be affected?

Understanding your taxes can be difficult, there’s no question about that. The process becomes even more challenging when the rules are changed. The Tax Cuts and Jobs Act of 2017 is one of the most major changes in the tax code that has been seen in recent times. The good news: most people will benefit!

Tax rates have been lowered almost across the board. The lowest bracket stays the same at 10 percent, but the next few brackets have dropped: 15 percent to 12 percent, 25 percent to 22 percent, 28 percent to 24 percent, etc. This will result in a small but significant difference in your paycheck that you may have already noticed.

The standard deduction has been effectively doubled, up to $24,000 for those married filing jointly. For those who were already using the standard deduction, it is a substantial change. For those itemizing deductions, it may not be a significant difference. Many will see a benefit to simply taking the new standard deduction rather than itemizing.

This is a potential source of frustration, however. No longer itemizing means you may not receive any benefit from mortgage interest deductions or charitable contributions. Some have seen that as less incentive to make those donations to nonprofits, but I have advised clients a change in perspective. The fact that you are ultimately paying less tax regardless of those contributions could result in feeling more freedom to make them!

The subject of charitable contributions brings into the forefront a concept available to those over 70½ years of age. Individuals with a Required Minimum Distribution (RMD) have the ability to contribute a portion of their IRA balance up to $100,000 directly to a charitable organization without it passing through their income. This has been available for a number of years, but really finds a new level of efficiency with these new tax rules.

The Qualified Charitable Distribution (QCD) works differently from a normal deductible charitable contribution. A typical charitable contribution is one made out of income you have received and may have already been taxed. These contributions can then be deducted at the end of the year when you file your taxes. The potential disadvantage of doing it this way is that the income that is later deducted is included in some portions of tax calculation and can ultimately affect the taxability of your Social Security.

Using the QCD removes that contribution amount from your income completely, avoiding any taxation on those funds. The QCD has additional potential benefit with the new tax rules as well, allowing the taxpayer to effectively receive a benefit from all charitable contributions, whether or not you use the increased standard deduction. We have been recommending the QCD to our charitably inclined clients for a number of years, but those conversations have increased in the wake of the new tax rules. The QCD can be used to cover any amount of your RMD, even covering the entire amount.

For those in a younger age group, some additional changes will benefit you. The maximum child tax credit has been doubled from $1,000 to $2,000, as well as increasing the level at which the credit phases out.

Perhaps one more significant change is the increase in income limits for contributions to Traditional and Roth IRAs. Those income limits have been increased by $10,000 for those married and filing jointly. This means that high earners who were on the edge of being able to contribute to a Roth IRA may now be eligible. A Roth IRA is a great way to begin an investment that will never be taxed again.

The bottom line here is—most of us will end up paying less tax in the spring of 2019 than we did this year. The only question? Whether Congress will decide to extend these provisions, most of which will otherwise expire in 2025.

Jacob Bales became an advisor in 2013. He is a fully licensed registered representative with Series 7 and Series 66 registrations. He is a co-advisor at James Bales Financial, focusing on planning, research and advising, including Social Security. Bales is a 2011 graduate of the University of Virginia. He can be reached at LinkedIn,, by email at or by phone at 757-591-9404.

Securities and Advisory Services offered through Centaurus Financial, Inc. a member of FINRA and SIPC, a registered broker/dealer and registered investment advisor. Centaurus Financial, Inc. and James Bales Financial are not affiliated companies.

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